ETFs
Is Modi’s mandate falling? Focus on Indian ETFs
Indian stocks have seen the biggest decline in more than four years (according to Reuters) as vote counting is underway, with early trends suggesting the Modi magic appears to be fading. INDIA opposition gains ground in Lok Sabha elections compared to its 2019 total, far higher than street expectations.
While Modi’s Bharatiya Janata Party (BJP) NDA was leading with 297 seats (at the time of writing), INDIA was catching up with 227 seats in early trends, i.e. an increase of 82 seats from its 2019 total. In contrast, in 2019, the NDA won 353 seats. And 272 seats are needed to form the government.
The biggest disappointment for the market is the fact that the BJP alone does not have a majority, which could cause some chaos in governance. And the NDA alliance’s overall numbers are well below the landslide victory predicted by exit polls.
Analyst Views
Before the election count, polls suggested the Bharatiya Janata Party-led alliance would win many more seats. And analysts expected reform-oriented policies to continue, thereby contributing to higher trend growth for the Indian economy.
Elara Securities said empirical evidence suggests election years are positive for stock markets. In each of the last four election years, the Nifty 50 has returned an average of 32%, with a significant contribution coming from post-election results, as cited in Business Today.
According to Elara Securities, pre-election performances can be varied, post-election recoveries have always been broad-based, translating into positive returns across all sectors. With the Nifty returning 4% so far this year, there remains upside potential.
Foreign investors’ outlook may not be changed
According to Societe Generale SA’s Asia strategist, foreign investors are concerned about Indian valuations, cited by Bloomberg. Even if Modi forms the government, the expected election results align with the outcome, potentially not significantly changing foreign investor behavior.
Net results and ETFs in brief
Overall, we expect a third term for the Modi government but with a strengthened opposition. From here, investors should focus more on economic growth and less on politics. Many analysts view today’s pullback as a buying opportunity.
The Indian economy will continue to benefit from long-term tailwinds from favorable demographics and ongoing geopolitical tensions between China and the United States, which could make India a new manufacturing hub.
“The only thing that a number below 300 for the NDA will force the main party to rethink its policy approach so far and could mean policies aimed at catering to a K-shaped recovery and therefore positive for the sector of the consumption,” said Garima Kapoor, an economist. Elara Capital, cited by Reuters.
The story continues
ETFs like Columbia India Consumer ETF INCO and WisdomTree India Income Fund EPI added 11.3% and 11.9% this year. However, ETFs like ETF Nifty India Financials INDF and VanEck India Growth Leaders ETF GLIN and EPI have the lowest P/Es in the Indian ETF group.
While EPI has performed well this year, other undervalued ETFs like INQQ, INDF, and GLIN have gained 3.5%, 3.6%, and 8.9% this year. iShares MSCI India Small-Cap ETF SMIN is also a good choice here as it has returned 7.9% this year and has a moderately high P/E in the pack.
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WisdomTree India Earnings ETF (EPI): ETF Research Reports
Nifty India Financials ETF (INDF): ETF Research Reports
iShares MSCI India Small-Cap ETF (SMIN): ETF Research Reports
Columbia India Consumer ETF (INCO): ETF Research Reports
VanEck India Growth Leaders ETF (GLIN): ETF Research Reports